Even among stocks with low Short Term PowerRatings of 3 or less
there can be important differences that will separate a stock that
will move dramatically lower from one that may only drift marginally
to the downside or even slide sideways rather than correct lower.
How do we separate the best trade opportunities among the low Short
Term PowerRating stocks from those that might be merely "OK" or
mediocre?
Our first "screen" is to make sure, if we are looking to bet
against stocks, that the low Short Term PowerRating stock is below its
200-day moving average. From time to time stocks with low Short Term
PowerRatings will appear above their 200-day moving averages. This
can happen when stocks have tremendous runs to the upside without
pausing or pulling back.
These super strong stocks are not stocks we want to sell short –
even if they have low Short Term PowerRatings. For us, shorting
stocks that are showing such obvious strength above the 200-day moving
average is a little like stepping in front of a moving freight train.
You might make it in time. But the odds of getting squashed are
strong enough to keep most of us off the rails.
Once we've cleared the area of low Short Term PowerRating stocks,
we like to narrow the list down even further so as to focus on the
stocks with the lowest possible Short Term PowerRatings. While stocks
with Short Term PowerRatings of 3 are not stocks to be buying, they
are not nearly as dangerous as stocks with Short Term PowerRatings of
2 or, especially, 1.
So while stocks with Short Term PowerRatings of 3 may be stocks to
avoid, the true short selling candidates tend to be the 2s and 1s.
Lastly, we like to look at a number of technical indicators and
patterns that our research has indicated do an excellent job in
spotting markets that are oversold or, in the case of low Short Term
PowerRatings stocks, overbought.
These indicators range from consecutive up or down days and gaps up
or down to stocks being up or down by 10% in a few days or, one of my
favorites, overbought and oversold readings in the 2-period RSI.
We use these indicators to see if we can find even more edges that
will help us see which stocks are displaying the most oversold or
overbought characteristics. It is a way of further limiting our list
of potential candidates so as to be left with only the best and most
likely to perform as expected.
Here are three such stocks. All three stocks are trading below the
200-day moving average, which gets them "in the door" as candidates.
Additinoally, all three stocks have Short Term PowerRatings of 1, for
example. This means that, according to our research, these three
stocks belong to that class of stocks that have underperformed the
average stock by nearly 5 to 1.
All three of these stocks also have 2-period Relative Strength
Index values of 98 or more. We have found that stocks with 2-period
RSIs of 98 or more actually underperform the average stock in one-day,
two-day and one-week timeframes.
Add all three of these factors together and you see why these three
stocks are in the PowerRatings Danger Zone. Dangerous, that is, for
all but those traders who like to sell stocks short.
Cheniere Energy Partners (CQP | Quote | Chart | News | PowerRating) Short Term PowerRatings
1. RSI(2): 64.35 (from 98.18)
FirstFed Financial Corporation (FED | Quote | Chart | News | PowerRating) Short Term
PowerRatings 1. RSI(2): 58.72 (from 99.22)
Rogers Corporation (ROG | Quote | Chart | News | PowerRating) Short Term PowerRatings 1.
RSI(2): 99.90 (from 99.77
Does your stock trading need a tune-up? Our highest Short Term
PowerRatings stocks have outperformed the average stock by a margin of
nearly 17 to 1 after five days.
Whether you have a trading strategy of your own that could use a
boost or are looking for a way to tell the stocks that will move
higher in the short term from the stocks that are more likely to
disappoint, our Short Term PowerRatings are based on more than a
decade of quantified, backtested simulated stock trades involving
millions of stocks between 1995 and 2007. Click the link above or
call us at 888-484-8220, extension 1, and start your free trial
today.
